Breaking the Bond: The Effect of Banker Turnover on Municipal Bonds

Abstract: This paper explores whether relationships with banks or individual bankers deliver greater value to municipal borrowers. A key identification strategy exploits the quasi-exogenous shock from the 2021 Texas underwriter ban, which barred five of the largest banks from underwriting municipal bonds in the state and triggered widespread banker departures. Using novel data on banker moves, I show that affected municipalities follow their banker at twice the rate of unaffected peers. Instrumenting the follow decision in an IV–DiD framework, I find that following the banker reduces yield spreads by 36 basis points, fully offsetting the ban’s 4 basis-point spread increase. These improvements arise via three channels: an informational channel, where unrated issuers lacking public credit signals experience an extra 16 basis-point decline; a network channel, where institutional investors allocate $1 million more per quarter to the banker’s new bank; and a banker-quality channel, where following an MBA-educated banker generates an additional 22 basis-point spread reduction. Overall, relationship-specific human capital significantly shapes municipal underwriting outcomes.

Do banks screen green bonds issuers?

Presentations: American Finance Association (AFA) PhD Poster Session 2024 

Abstract: This paper examines the role of underwriters in certifying the environmental quality of green bonds. I find that firms with long-standing relationships with major green underwriters are 1.5–2 times more likely to issue green bonds and obtain a green premium of up to 29 basis points. However, despite these financial benefits, these firms increase their emission intensity by approximately 190 tonnes of carbon emissions per million dollars of net assets after green bond issuance. In contrast, issuers without prior ties to major green underwriters receive no financial premium but significantly reduce emissions by about 400 tonnes of carbon emissions per million dollars of net assets. These results suggest that major green underwriters prioritize established client relationships over rigorous environmental screening, undermining the credibility of green bonds as genuine instruments for achieving environmental improvements.